The FINANCIAL — Demand for real estate in Georgia has reduced by 90%, according to Aleko Chubinidze, expert-broker of the company Real Estate.
“The determination of prices was not fixed even before the crisis. There are currently some cases of real estate having devalued by 70%. The worst thing for real estate and all other businesses in the market is a period of stagnation. Customers are waiting for larger reductions of prices whereas sellers are saying that the prices have reduced enough and won’t go down any further. However to date the end of price reduction on real estate has not been reached yet,” says Akaki Tavadze, lecturer of Tbilisi free university, ESM Tbilisi.
“From May 2008 till August the market of real estate business was in real stagnation. Buying property during this period was not profitable. The prices of real estate that we had back in August equalized prices in the Baltic countries and some European ones too. It was illogical to have such high prices on real estate. We are still classified as a developing country. We are not producing anything. The artificially high prices were caused by the policy of the banking sector which was leading a cheap money policy. Currently you can meet lots of people selling their property just so that they can cover the interest rates of the banks they owe to,” Paata Takvarelia, Director of the company Real Estate, notes.
Takvarelia believes that even if it were not for last August’s events in Georgia, a reduction of demand for real estate would have been inevitable, as supply was considerably higher than demand.
“It is most difficult for me to say how much a property should cost. Because the same flat, in the same circumstances, may have a radically different price. It all depends on the expectations and plans of the owner. Accordingly we don’t have a concrete price for real estate and this badly affects the market as a whole,” says Nino Absandze, CEO of Real Estate Brokerage Presto.
“There are some businessmen who are finding the current situation on the real estate market beneficial and thus buying property while prices are as low as they are. However the main segment of customers on the real estate market is comprised of those who are having to sell or buy property due to necessity,” Absandze notes.
“Overall prices of real estate have been reduced by 30%. As for the demand for real estate, it has reduced by 90%. Prices for renting have shortened by 10-15%. Demand for cheaper priced properties increased after the beginning of the crisis. You can still find a number of people able to invest money in real estate but the majority are waiting for more reductions. I think that the prices will continue to reduce in the future and will reach 40%,” notes Aleko Chubinidze, expert-broker of the company Real Estate.
“The fact that demand for real estate is at its lowest means that the prices have not been reduced enough. The situation is the same on the auto market,” notes Tavadze, ESM Tbilisi.
Tavadze thinks that from the very beginning the construction business should have been regulated by the Government. “They should have imposed strict rules for construction companies. For instance the Government should not permit them to sell “open air”. I often asked the employees of construction companies what percentage of customers buy property for themselves and what percentage buys for later reselling. The answer was 50/50. The prices of real estate were as a result of the operations of the resellers. And they were making the forecast on the real estate market.”
Takvarelia, Real Estate, says that even now the prices of property in Tbilisi are expensive. “They must be reduced further to get closer to the real cost according to their real worth. Even now people are selling property at the same prices. We are calling the owners of property and asking them if they have reduced prices. An example of a significant reduction of price of a private property is USD 950,000. The starting price of which was USD 1,600,000. Now the owner is selling it for USD 650,000. The important question is why they tried to benefit from the extra amount of USD 1 million in the first place.”
“The real estate market may be rebounding from its recent slump and will still return to its previous peaks, but before that it will have to reach absolute rock bottom. Actually, investing money in the real estate market is still considered profitable worldwide,” Tavadze declares.
“Property is an object of necessity and accordingly the sphere will never become bankrupted. I don’t think that the prices of real estate will ever return to the same figures of spring 2008 though. The most important thing at this time is the formulation of prices,” says Absandze, Presto.
“From the very beginning when prices for real estate started suddenly increasing the media played a key role in this. Customers were informed every day that prices of real estate where increasing on an hourly basis and that if you were not in a hurry you would never catch up with them. The same goes for now. Everyone is talking about the crisis of real estate. However the situation is not so critical,” Absandze declares.
“Lease and rent prices have also been reduced but I can’t provide any exact numbers. Owners, having given a firm price for their property, are later asking us for the opportunity to negotiate directly with the customers themselves. This means that during their private conversations with prospective clients concessions will be made in order not to lose out on a deal. Actually prices are stated according to the balance of supply and demand. People who are still estimating their property at high prices are obviously not in a hurry to sell,” Absandze says.
“It is hard to invest money in real estate at a time when prices are so low and future benefits are uncertain; foreseeing prognoses is currently very difficult. There might be businessmen though with lots of money who won’t mind staking everything. Currently lots of offices spaces are freeing up and on the market again for rent. However from this we can’t just conclude that all these businesses are closing down. They are just moving to smaller offices and currently most of them are under the process of relocating. Many owners of property have started reducing rent prices in order to keep their tenants. If we don’t soon see some radical changes in our political image and other aspects, then I don’t think that the previous rates of real estate prices will return any time in the next two years,” Chubinidze, Real Estate says.
Written By Madona Gasanova
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